For a while there, the notion of putting money behind a sportsbook operation in the age of COVID-19 just didn't add up. It certainly didn't help that professional, semi-professional, college, and even high school sports were all pretty much shut down for the last few months. With sports starting to come back into play, however, and a slug of pent-up demand ready to break loose, sports betting operations like DraftKings (NASDAQ:DKNG) suddenly make much more sense. Throw in a string of new developments for the company and DraftKings looks like the kind of operation investors should be betting on, not just with.
DraftKings Beats the Spread
Since our last update, DraftKings has made some exciting new deals that make it a much stronger presence in the market. The first of these features a new connection to ESPN, as DraftKings will now be the company's exclusive provider of “daily fantasy sports” operations, as well as a “co-exclusive partner for gambling link-outs” at the sports network. This will put DraftKings' own content directly into ESPN's line of television events and its online operations as well.
Since ESPN currently holds broadcast rights to the lion's share of the US sporting market, accounting for everything from NFL Monday Night Football games to NBA action, that's a whole lot of new exposure—and plenty of new potential market—for DraftKings.
That was advance enough for anybody, but hot on the heels of such a development came word that DraftKings had inked a new deal with the New York Giants, which would give DraftKings the ability to set up not only sportsbook operations therein, but handle all online wagering and establish a “virtual sports lounge” for the team. This is in addition to similar deals the company has established with the New England Patriots and the Dallas Cowboys.
Moves like these help establish the company as a safe, legal alternative in terms of sports betting, and will likely go a long way toward helping the company establish a presence and take market share in the field.
Analysts Like the Field Too
The news has certainly been beneficial for DraftKings lately, and the word out of the analyst front certainly doesn't hurt matters for the company either. Our own research finds that, with 16 analysts currently targeting DraftKings, the response is overwhelmingly positive. While there are no “strong-buy” ratings, there are also no “sell” ratings, and there are only five analysts calling for “hold” ratings. The remaining 11 have “buy” ratings, which is a pretty strong recommendation.
Meanwhile, our internal analysis has called DraftKings a winner in recent days as well. Back in May, we called DraftKings a “dual-narrative buying opportunity”, pointing out that the company could comfortably survive the pandemic as a purely fantasy-sports based operation. With monthly active players on the rise back in May—when there were no sports upon which to bet—proved this was a company that was just waiting to get back in the fray. Two months later, even with the notion that college football might be out of the picture for 2020—a development which turned out to be nowhere near so pessimistic—we still called it a buy.
Lots to Like, But Not Without Trouble
Basically, all the conditions are set for DraftKings to make some real headway in the next several weeks. Sports are back up and running, and all across the spectrum. NFL and NBA action is currently operational, and the Big Ten will start back up on the weekend of October 24. That's going to give users things to bet on, and not just the fantasy side of things; that was good enough for short-term operations during an emergency situation, but we all knew that couldn't hold together forever.
Some problems have emerged, however, that may put a crimp in operations. First off, the Big Ten's return has a long enough lead time that it may get shuttered once again before it can even restart. We've seen that sort of thing happen to events all over for the last several months. Moreover, the increasing politicization of sports is having negative consequences in terms of viewership; ratings are already down from 2019, notes a report from Axios, and that's with several months of pent-up demand in play. It also doesn't help that the consensus price target for DraftKings is $48.25, while the stock is trading at $51.69 as of this writing. Price targets can change, and have before, but the upside right now is a bit limited.
However, even these potential downsides have their limits, especially with an operation that serves as its own draw like DraftKings. Even with competition emerging in the field, the exclusive deals the company has set up should insulate it from outside attack and set it up to be a juggernaut in the game, well worth investing in.
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